Even as John Kerry was accusing President Bush today of putting an economic squeeze on the middle class, he got new fuel for his argument that Americans' bills are getting bigger. Consumer prices shot up six-tenths of a percent last month, stoked by higher energy and food costs. It was the largest increase in the gauge of inflation in more than three years. Well, as you might expect, President Bush sees that figure and the broader economic picture differently.

(BEGIN VIDEOTAPE)

WOODRUFF (voice-over): Call it a tale of two economies.

BUSH: We've acted, and the economy is getting better. We've overcome a lot.

KERRY: A rising tide is supposed to lift all votes. But today the middle class boat is taking on water.

WOODRUFF: George W. Bush and John Kerry are painting starkly different pictures of the nation's fiscal health. The president's landscape, booming job growth, a reborn manufacturing sector, renewed consumer confidence, and a surging real estate market. All fruits of his economic programs with his massive tax cut as the centerpiece.

BUSH: The ingredients for continued economic growth are present, and I'm very pleased. I'm particularly pleased because it means that workers are able to do their duties to their families.

WOODRUFF: Not so says the Democratic insurgent. Kerry says that, while employment numbers may be going up, wages are going down. The upticks he talks about deal with rising food, health, and child care costs, a steady increase in the number of personal bankruptcies, and, of course, the climb in gas prices and the effect that has on inflation.

KERRY: I just think it's wrong for middle class Americans to be saddled with endless debt and deficits while the most fortunate among us walk away with billions in tax cuts.

WOODRUFF: Signs of recovery he says are deceptive.

BUSH: I am an optimistic person.

WOODRUFF: Team Bush casts Kerry as a gloom-and-doom pessimist who refuses to acknowledge clear evidence of progress.

BUSH: I guess if you want to try to find something to be pessimistic about, you can find it, no matter how hard you look, you know?

WOODRUFF: But so far, Kerry, or his message at least, is winning the day. Polls show Americans aren't buying that the economy is on the comeback trail, and they don't like how the President has been managing their money.

(END VIDEOTAPE)

WOODRUFF: Well, in addition to the economy, President Bush faced questions today about security in Iraq and about the fate of Saddam Hussein. It happened during a Rose Garden news conference with Afghan President Hamid Karzai. Let's bring in now our White House correspondent Suzanne Malveaux -- Suzanne.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, Judy, it's clear that both leaders are invested in the success of Afghanistan. They want to show that it is stable and democratic.

This comes, of course, just two weeks away from the transfer of power in Iraq. President Bush would like to point to Afghanistan as a model for what Iraq could possibly become. Critics charge that resources have been diverted from Afghanistan to Iraq. But President Bush saying this is the first victory in the war on terror, that Afghanistan deserves support from the international community.

President Bush also talking about what is on so many people's minds; that is the fate of Saddam Hussein. There are discussions taking place between a U.S.-led coalition and Iraqi officials. The new Iraq prime minister says he wants Saddam Hussein in Iraq custody before the June 30 deadline, the transfer of power. President Bush saying they want to make sure that the security situation on the ground in Iraq is such that Saddam Hussein stays in jail.

(BEGIN VIDEO CLIP)

BUSH: We're working with the Iraqi government on a couple of issues. One is, you know, the appropriate time for the transfer of Saddam Hussein. And secondly, we're going to make sure there's appropriate security.

I mean, one thing, obviously, is that we don't want and I know the Iraqi interim government doesn't want is there to be lax security and for Saddam Hussein to somehow not stand trial for the horrendous murders and torture that he inflicted upon the Iraqi people.

(END VIDEO CLIP)

MALVEAUX: Judy, we apologize for the noise from the construction there across from the White House. I do want to say that the administration said earlier today that Saddam Hussein would remain a prisoner of war as long as there was the war on terror. But, of course, administration officials also saying they would like to turn over Saddam Hussein to the Iraqis as soon as possible. What they want to make sure, however, the security situation is such that he will not be assassinated in Iraqis' control and they have the kind of legal and institutional structures in place that would allow him a fair trial -- Judy.

WOODRUFF: All right. Suzanne, thanks very much. And we're going to chastise them for not coordinating their hammering with Suzanne's report.

MALVEAUX: It always happens every day.

WOODRUFF: I know. Suzanne Malveaux, thank you very much.

Well, now back to campaign hot buttons here at home. CNN has confirmed that the nation's largest seniors group, AARP, will endorse legislation to allow the importation of cheap prescription drugs from Canada. As our congressional correspondent, Ed Henry, explains, the move is likely to turn up the political heat on President Bush.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: This is our Medicare card.

BUSH: Yes.

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT (voice-over): Seniors are a key voting block in the upcoming election, which is why President Bush headed to the battleground state of Missouri on Monday to tout the benefits of his Medicare prescription drug plan. But Democrats charge the new law has not done enough to lower drug costs and the program's new discount cards are confusing. So they're pushing a bipartisan bill to legalize imports of cheap drugs from Canada for seniors.

SEN. TOM DASCHLE (D-SD), MINORITY LEADER: They're doing it in larger numbers than ever before, driving to Canada, using the Internet, making phone calls. They're accessing those drugs. But they want to be legal when they do it, and that's why this legislation is so important.

HENRY: Democrats are about to get a major political boost from the nation's largest senior lobby. A spokesman for the AARP confirmed to CNN that the group will aggressively work to pass the bill sponsored by a bipartisan group of senators.

Democrats are turning the tables on the President, who used an endorsement from the AARP to get his Medicare reform bill passed last winter. The President acknowledged Monday that the drug discount cards are a little complicated, but he charged that Democrats have been spreading misinformation.

BUSH: We're trying to fight through the clutter, the noise, so that people can understand that there is a great opportunity to take advantage of a good piece of legislation.

(END VIDEOTAPE)

HENRY: Judy, Senate Republicans have their own version of the importation bill. It was written by health committee chairman Judd Gregg. They think that this bill will actually provide for safer drugs because there will be a better inspection process for the pharmaceuticals coming in from Canada and other countries, like Japan.

But Democrats think they have the votes to defeat the Gregg bill. And Democrats also point out that while a few months ago it looked like President Bush was going to steal a domestic issue, all of a sudden, it looks like with this AARP endorsement, maybe the political ground is going to shift a bit -- Judy.

WOODRUFF: Do we know, Ed, whether the White House or Republicans tried to persuade the AARP not to endorse this plan?

HENRY: We do not know that. This has been going on very quietly, behind-the-scenes negotiations with Democrats and some moderate Republicans.

The key here is that AARP has about 36 million members across the country. They are the 800-pound gorilla in the debate. And it's believed that once they voice their support for this, this is going to shift the ground a bit.

Now, keep in mind as well the House has already passed importation legislation. So if the Senate does pass something by the August recess, this could head to conference committee. That could mean one of two things. It could stall in conference committee, or it could mean it's on the agenda leading up to the election -- Judy.

WOODRUFF: And who knows whether it will be voted on. That to be determined later. HENRY: Very much up in the air -- Judy.

WOODRUFF: OK. Ed, thank you very much.

Well, John Kerry is out there bashing what you might call Bushonomics. But are voters likely to buy it? Up next, we will discuss Kerry's economic outlook and the campaign strategy behind it.

Plus, place your bets. We'll get an earful about the presidential race from Casino workers in Las Vegas.

And later, keeping the faith: the Catholic vote, campaign 2004, and religion's role in politics.

This is INSIDE POLITICS, the place for campaign news.

(COMMERCIAL BREAK)

WOODRUFF: As President Bush and Senator John Kerry trade barbs over the economy, the president is under attack from another corner. A group of former high-level diplomats and military officials, some of whom served in Republican administrations, are angry, they say, over the direction of U.S. foreign policy. And they plan to issue a statement tomorrow condemning President Bush.

CNN political analyst Ron Brownstein of the Los Angeles Times is here to talk more about these attacks and what they're saying.

Ron, how significant is the charges that these former military and diplomatic people are making?

RON BROWNSTEIN, CNN POLITICAL ANALYST: Well, I think it could be significant in the race because it speaks to what seems to me is the central dynamic driving forward this race, which is the division in the public about the president's foreign policy. I mean, in talking to voters -- I was out the other day in Minnesota -- I really feel that more than any domestic issues, attitudes toward Iraq and foreign policy more broadly, whether you approve or disapprove, really is at the core of people's choices.

And what these former diplomats and military officials are saying is that they are arguing that President Bush's approach has made us less secure by alienating too many of our traditional allies. In many ways, echoing arguments familiar from John Kerry and Democrats. What the Bush campaign and other Republicans sympathetic and others in general to his foreign policy say is, 9/11 demanded big changes, we made them, this is the old order resisting change.

WOODRUFF: So you're saying the Bush campaign can't just dismiss this as a bunch of disgruntled formers who don't really have any -- any role in decision-making anymore?

BROWNSTEIN: Well, I think that will be some -- that will be part of the argument, Judy. And I think they'll also say these are people, many of whom have indicated sympathy for Democrats before, worked for Democrats. Obviously, many of them held high-level positions for Republicans as well.

I think it's a mistake to view them -- or this dispute largely in partisan terms. This really isn't a Democratic or Republican group. It's sort of a professional group. It's sort of a career foreign policy group.

In many ways, their arguments and their perspective is similar to someone like Dick Clarke, the former counterterrorism czar, or Rand Beers, who left the Bush White House to work for Kerry. They are arguing that the administration has made too sharp a departure from American foreign policy where it's been. And again, what the Bush supporters and allies will argue is that that departure was necessary, these people are arguing for an approach, especially towards the Middle East, that simply failed, as demonstrated by 9/11.

WOODRUFF: Ron, a completely different subject, the economy. I want to ask you about that.

Clearly, there have been some improvements. President Bush says these improvements matter. People are doing better, more jobs, the country is growing. On the other hand, John Kerry says the middle class is getting squeezed. Who gets the benefit of this argument over the economy?

BROWNSTEIN: I think on the economy, in the end, President Bush is running, in effect, more against the clock than he is against John Kerry. There are always going to be downsides in the economy. Rising gas prices, health insurance premiums, I think, is a sleeper issue. And there are parts of the country where the job growth is not penetrating as much as elsewhere, say, Ohio or Pennsylvania.

But overall, the fundamental numbers here that we're seeing in terms of job growth over the last six months, the overall economic growth, should be enough to benefit the president. Not roaringly, perhaps, as it was in, say, 2000, but overall it should be a positive to the extent the perception seeps in that things are getting better.

AP poll this week, 57 percent of Americans said the economy had lost jobs over the last six months when it's gained over a million jobs over the last nine months. There's a lag. The president needs to...

WOODRUFF: In the perception?

BROWNSTEIN: There's a lag between the reality and the perception. The White House thinks it has compounded this time by anxiety about Iraq. But in the end, if he has enough time between now and November, the underlying trend should give the president at least some boost.

WOODRUFF: And you know they're going to keep talking about it between now and November. Just quickly, Ron, what about in the battleground states, what we're calling the showdown states? Economic picture there benefit the president more or what?

BROWNSTEIN: It's very mixed. It's very particular. In fact, if you look at a state like Wisconsin or Missouri, the president is doing better than he is in a place like Ohio. And one reason clearly is those are states that didn't suffer as much job loss on the downside, and are doing a little better on the upside.

So it clearly is a factor in these local environments. But I do that overall, when you look at voters, what seems to be separating them most now is their attitude about Iraq and whether the president made a mistake in taking us there.

WOODRUFF: And Iraq, of course, the developments coming with the handover. And we'll see what happens after that.

BROWNSTEIN: All the way through November.

WOODRUFF: All the way.

BROWNSTEIN: Thank you.

WOODRUFF: Ron Brownstein, thank you very much. Appreciate it.

In just a moment, Carlos Watson checks the "American Pulse." That's what we're calling it. He's been asking voters if they pay attention to all those negative campaign ads and if they believe what they're hearing.

(COMMERCIAL BREAK)

WOODRUFF: A new report just in to CNN shows John Kerry outspending George W. Bush when it comes to television ads last week. These are numbers from TNS Media Intelligence. This is a group we rely on for information on television ad spending.

Last week, from June 7 to June 13, Kerry spent at least $4.6 million to George Bush's $2.5 million. Overall, however, if you look at the overall period from March 3 to June 13, Bush is ahead $65 million to $51 million. The latest numbers from TNS Media Intelligence. Thank you for those.

Well, Las Vegas is one of the country's fastest growing cities, attracting people from all over America. CNN political analyst Carlos Watson took a trip to this diverse city to sit down with some casino workers to find out what they think about the presidential race.

(BEGIN VIDEOTAPE)

CARLOS WATSON, CNN POLITICAL ANALYST: So how many of you guys are following the election closely?

UNIDENTIFIED MALE: I am. Not closely, closely, but you know.

UNIDENTIFIED MALE: Not really at all.

WATSON: Close or not?

UNIDENTIFIED MALE: Oh, a little bit.

UNIDENTIFIED FEMALE: A little bit.

UNIDENTIFIED MALE: A little bit.

WATSON: Has anyone seen an ad?

UNIDENTIFIED MALE: Oh, yeah.

UNIDENTIFIED FEMALE: Oh, yeah.

UNIDENTIFIED MALE: Oh, yeah.

WATSON: Has the ad made a difference?

UNIDENTIFIED MALE: No.

UNIDENTIFIED FEMALE: I think the only difference that it's made personally to me is I can appreciate the fact that John Kerry -- that he spent time actually out there in combat situations, whereas opposed George Bush kind of was sheltered because of his father and the influence of his family.

WATSON: Does that really make a difference to you?

UNIDENTIFIED FEMALE: It seems to me like here's a guy who probably never would have found himself in such a position of power had his father not been in the oil industry as long as he was and had the kind of money he did and the political influence that he did. I mean, how far would this guy really have gone in life?

WATSON: Richard, what do you think?

UNIDENTIFIED MALE: A lot of people have had money in the past. The commercials that are out now, the ones that are attacking Bush, you know, he's only one man. And, you know, he can't do it all. It doesn't influence me because I know who I like already.

WATSON: Who are you going to support?

UNIDENTIFIED MALE: I'm going to support Bush.

WATSON: Where are you on the commercials? Have you seen them, and have they had an impact?

UNIDENTIFIED MALE: Yes. I'm not -- you know, I'm not a big Bush fan. However, the commercials that Kerry was doing really turned me off on Kerry. They were very, you know, anti-Bush. They were just (UNINTELLIGIBLE) how Bush feels (ph) stupid and the quotes. It just got really raw and dirty, and it really turned me against Kerry.

UNIDENTIFIED MALE: I think that you need to prove yourself with your policies, you need to prove yourself with your actions. It's a way to sway the vote when you go out there and literally say on television that, you know, this person sucks for this reason or this person's done this, or this person's policy isn't exactly what they said it's going to be.

All right. That's all campaign strategy. But to me, I don't think it's a way to win an election.

(END VIDEOTAPE)

WOODRUFF: Some voters talking to Carlos Watson. These voters are casino workers in Las Vegas. And you can hear more from Carlos' interview tonight on "PAULA ZAHN NOW." That's at 8:00 p.m. Eastern, 5:00 Pacific.

Well, now that he is not actively campaigning for president, the Reverend Al Sharpton has time to branch out. Today he's co-hosting "CROSSFIRE." Coming up, we're going to get his take and Tucker Carlson's take on the economy and the race for president.

And Chuck Todd joins me to survey the political landscape in the great Northwest.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ANNOUNCER: A Vatican meeting, and a plea for the Catholic Church to push his conservative agenda.

DAVID KING, HARVARD INSTITUTE OF POLITICS: In some ways, this is a "Hail Mary" pass by the president to try and get Catholic votes.

ANNOUNCER: Is President Bush trying to mix church and state?

BUSH: I'm very mindful about saying, you know, oh, vote for me, I'm more religious than my neighbor.

ANNOUNCER: The political battle over John Kerry's Senate seat. Should he quit Congress to concentrate 100 percent on the race for the White House?

Is DeLay getting hammered? The House majority leader is hit with an ethics complaint that he calls character assassination.

Across the nation today, there is a good deal of discussion about religion and politics. In Colorado, the U.S. Conference of Catholic Bishops is reviewing whether elected officials who don't follow church policy should be allowed to receive communion. In Massachusetts, a lobbying arm of the church is urging Catholics to register their profound disappointment with state lawmakers who did not vote to ban gay marriage.

And at the White House, even President Bush weighed in on the relationship between church and state. Our senior political analyst, Bill Schneider, has more on religion and the presidential race. (BEGIN VIDEOTAPE)

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST (voice-over): Democrats are nominating a catholic for president, and Catholics are a swing vote. The last time a major part nominated a Catholic candidate for president was 44 years ago.

In 1960, nearly 80 percent of Catholics voted for John F. Kennedy. And this year? The catholic vote is split. Fewer than half of Catholic voters say they support the Catholic candidate.

Kennedy's problem in 1960 was convincing non-Catholics he wouldn't take orders from the church. Kerry's problem this year is whether many Catholic voters will be offended because he doesn't take direction from the church.

UNIDENTIFIED FEMALE: And if you're really Catholic and you do value life, you would want to vote for someone who values the same thing.

SCHNEIDER: What's changed since 1960 is the emergence of the social agenda. Issues like abortion and gay marriage. Those issues have given Republicans an inroad with Catholic voters. When President Bush went to Rome this month to meet with the pope, he asked the Vatican to encourage U.S. Catholic bishops to speak out more about those issues.

KING: This is a "Hail Mary" pass by the president to try and get Catholic votes.

SCHNEIDER: The president seems to be calculating that if he can get the church to speak out more on its own agenda, it will advance Bush's agenda.

DEAL HUDSON, "CRISIS" MAGAZINE: This is the moral and social agenda of the Catholic church that the president agrees with the church on and is seeking to support and actualize in this country.

SCHNEIDER: There is a risk of backlash among Catholics who don't want to see their church get involved in politics. About seven in ten believe the church should not try to influence positions Catholic politicians take or how Catholics vote. That's not the issue, conservatives say.

HUDSON: I think it suggests is that the bishops should keep from getting involved in partisan politics by name or by party.

SCHNEIDER: What President Bush asked the church to do is speak out on moral issues, but for a politician to make such a request from a church is unusual. Kerry intends to make it an issue. He calls the president's request...

KERRY: Entirely and extraordinarily inappropriate and I think it speaks for itself.

SCHNEIDER: The Bush versus Kerry battle for the Catholic vote is in some respects a battle between observant and dissenting Catholics who disagree, not only on the teachings of the church, but also how the church should advance its agenda politically -- Judy.

WOODRUFF: All right. Bill Schneider. Thank you very much.

And we're going to talk more now about Catholics and the presidential campaign with John Leo. He is religion writer for "U.S. News and World Report" magazine. John Leo, first of all, has an American president ever before done what George W. Bush did in terms of asking the Vatican to support him and his beliefs?

JOHN LEO, RELIGION WRITER, "U.S. NEWS & WORLD REPORT": Well, first, Judy, I'm not so sure we know that that's what the president did. It's a very soft report, third or fourth hand. I think Bill Schneider made it a little harder than I saw it, anyway, in the "International Herald Tribune" and the "Boston Globe." It was much more tentative and third hand, but if Bush did this, it certainly sounds bold and inappropriate.

WOODRUFF: Reading from a report on CNN -- saying a Vatican official privy to discussions between Bush and Cardinal Sodano said Bush, quote, "complained that the U.S. bishops were not being vocal enough in supporting him."

LEO: Yes. That's an anonymous third hand source. You can make that as hard as you like, but it didn't sound that hard to me. Remember, the courier speaks Italian and thinks in Latin and there's lots of room for misinterpretation of what they say particularly when there are no names attached and it's third hand.

WOODRUFF: So even though -- I gather the White House has confirmed that the president asked for something like this. We are still -- you're saying we're still waiting for more...

LEO: If you have that -- do you have that? I have not seen that on my way over here. I checked five minutes before...

WOODRUFF: Well, I need to check. I don't want to stand on that. I'm going to check on that. So let me quickly move on to something else. How would the Vatican hierarchy look upon such a request or even a suggestion of such a request, do you think?

LEO: Well, I would expect them to recoil. First of all, they don't like to mix directly in partisan politics, particularly in election years and the Vatican has distinct problems with President Bush on the Iraq war and capital punishment. So it would be unusual, but it's possible that Bush just implied this and the report that got to us three or four hands later made it sound firmer than it really was. I don't really know.

WOODRUFF: You said you'd expect them to recoil. So are you saying you don't think they would oblige them and actually urge the bishops in the United States?

LEO: No. That's not the way the church likes to operate. The problem with the ex-communication or the denial of communion, rather, is that the church has a position, a very firm, theological position on abortion and it's worrying that its most prominent members, the politicians in the United States are ignoring it entirely as if it were optional. It is not optional. There's a lot of wiggle room in war theory or capital punishment. There is no Catholic theological wiggle room on abortion. It's simply unjustified homicide and that's what the bishops would like politicians to know. They don't want to get involved and become arms of the Republican party but they're worried about it not being taken seriously.

WOODRUFF: The poll that Bill Schneider were citing, almost 70 percent of American Catholics saying they think the church should not try to influence the way Catholic voters behave. Does that surprise you?

LEO: Again, I wouldn't formulate it that way, Judy. The Catholic church is the communal church unlike Protestantism where people make up their own mind. The Catholic church expects you to accept the key doctrines and then apply your own conscience. So there's no way to tell people what to vote, but the church expects Catholics to view abortion as something morally very serious that they should do something about. Something. They can never tell Kerry or anybody else how to vote, but they have a right to expect that Catholic politicians would reflect Catholic moral view of abortion in some way.

WOODRUFF: OK. John Leo, we thank you very much for talking with us. It's a subject I know we'll be looking at as this campaign moves on. So I hope we can speak with you again.

LEO: Thank you.

WOODRUFF: Thank you very much.

Now we turn to Capitol Hill where a top Republican known for hardball politics is on the receiving end of what he calls a partisan smear tactic. Our congressional correspondent Joe Johns has details on the ethics complaint against House majority leader Tom Delay.

(BEGIN VIDEOTAPE)

JOE JOHNS, CNN CONGRESSIONAL CORRESPONDENT (voice-over): Outgoing Texas Democrat Chris Bell filed the first known ethics complaint in seven years against a member of the House Republican leadership. The target, Congressman Tom Delay, the second most powerful Republican in the House.

JOHNS: The complaint charges Delay traded contributions from companies like Westar Energy for access to pending legislation, illegally funneled corporate money to Texas state candidates through a political action committee he set up called Texans For a Republican Majority and improperly used his office to track a private plane carrying Texas Democrats who fled Austin last year to avoid voting on a controversial redistricting plan. Delay said he welcomes an ethics investigation and that there's no subject to the complaint. "None of the things have any validity. All of this action is nothing but character assassination by the Democrats," he said. For the House, the question is whether the complaint will trigger retaliation by Republicans, a war of ethics charges between the parties.

UNIDENTIFIED MALE: These are nothing, but trumped up charges that have been in the news before. I think that there is no basis upon which anybody can act on them and they will be dismissed.

(END VIDEOTAPE)

JOHNS: Now these are charges that have been heard before, but there's no indication the ethics committee has, in fact, heard these charges before. Republicans say Bell is simply bitter because he lost his primary battle. His district was redrawn. Of course, as we all know, Tom Delay supported the plan that led to the redistricting. Judy, back to you.

WOODRUFF: That is true. Joe Johns, thank you very much.

The Pacific northwest is known as a Mecca for high tech and some say for fancy coffee and it is also a hot spot in the presidential race. We'll get new snapshots of two battleground states just ahead.

Plus, from the presidential race straight into the crossfire. We'll catch up Al Sharpton.

And a day after he made nice with President Bush, what does Bill Clinton plan to do for John Kerry?

(COMMERCIAL BREAK)

WOODRUFF: A top Republican in Massachusetts is calling on John Kerry to resign his seat in the U.S. Senate. Lieutenant Governor Kerry Healy says Senator Kerry is failing to represent Massachusetts while he runs for president. Republicans say that Kerry has missed 87 percent of Senate roll call votes so far this year.

In an interview today for "CNN PRESENTS" former GOP presidential nominee Bob Dole told our Candy Crowley that Kerry should follow his example.

(BEGIN VIDEO CLIP)

BOB DOLE (R), FRM. PRESIDENTIAL CANDIDATE: Bit I think what he should do is what I did on June 11, 1996 and to say I want to run for president and I'm going to walk out of the Senate today and I'm not coming back.

I think that would be a message to the American people -- they didn't get my message that I was willing to give up something. But it might be something John would want to consider.

(END VIDEO CLIP)

WOODRUFF: Kerry today rejected these new Republican calls for him to quit the Senate.

(BEGIN VIDEO CLIP)

KERRY: I'm running for president because we have to put this country back into a place of responsible leadership.

And I believe I'm serving the citizens of Massachusetts and the country in the proposals I've laid out to provide health care to all Americans which George Bush has not, to balance the budget and be fiscally responsible to cut the deficit in half which George Bush has added to.

And we can't do the things we have to do for Massachusetts, for our schools, for our kids who are all over the country unless we have more responsible leadership.

(END VIDEO CLIP)

WOODRUFF: Kerry spoke separately this afternoon at a fund raiser in Cincinnati, Ohio.

Well, Washington and Oregon are two of the showdown states where the battle for the White House is too close to call. Chuck Todd is here to continue his reports on all of these important states. He's the editor in chief of "The Hotline," an insider's political briefing produced daily by "The National Journal."

All right. You say Washington State is in play. What do you base that on?

CHUCK TODD, "THE HOTLINE": Well, we have new polling information out in the last 24 hours which shows that it is a very close race here. The Democratic lean favoring Kerry just slightly, 46 percent to Bush's 42 percent. And then the all-important Ralph Nader vote in this state which is just 2 percent.

Washington is one of the states that the Republicans are pushing hard to get into play. There's an open governor's race. It's actually the Republicans best chance to win the governor's seats in a couple of decades.

The Senate race, Democratic Senator Patty Murray is up for reelection. George Nethercutt was not the first choice of the White House. They tried to get Jennifer Dunn, a retiring congresswoman to run. But they think Nethercutt has enough money to make it competitive.

So the Bush campaign's counting on a trickle-up effect to help them which is why President Bush is going out there to raise money for a Senate candidate. That's something we haven't seen President Bush do very often this year.

WOODRUFF: Nerthercutt's the one who knocked off a former House speaker, Tom Foley.

All right, Nader, you showed him at two percent. But could he be a larger factor in that Washington State?

TODD: That's another angle to Washington. One of the reasons Washington got put into play in 2000 as a battleground state was because of Nader. He was polling 7, 8, 9 percent. And it made the Bush campaign at the time think they could knock Gore off.

Well he eventually only got about five. If for some reason, Nader could pull -- Howard Dean was very popular in Seattle, had some of his largest rallies out there. There's a huge anti-war sentiment out there. If Nader somehow tapped into some of those former Howard Dean people and got over that 5 percent threshold, then it really is in play and it would be a real problem for Kerry.

WOODRUFF: All right, what about next door in Oregon? What's the Nader factor there?

TODD: Nader has been trying to get on the ballot. And that's what makes or breaks this state. He's tried twice and failed using some quirks in the law to get on and would avoid petition signatures.

Oregon's been a weird state to figure. It has this strident anti-war sentiment to it. So instinctively you would think Bush has no chance. But it's a strident anti-tax state, too. And so Republicans have done better than expected in the state.

But this -- talked to a lot of people who that that eventually the Bush campaign will pull out of Oregon. It's just not necessarily in the cards. And it won't be as close as it was four years ago.

But, Nader's a big factor there as well.

WOODRUFF: Sounds like Washington is a different story.

TODD: I think so. A let more going on in Washington than Oregon this year.

WOODRUFF: Chuck Todd, continuing his tour of the country.

TODD: Right from here.

WOODRUFF: Battleground states. All right, Chuck, thank you very much. "The Hotline" is an insider's political briefing produced every day by "The National Journal." You can go online to NationalJournal.com for subscription information. Thank you, Chuck.

Question: is the U.S. economy a boom or bust for middle-class voters? George W. Bush and John Kerry seem to disagree. Chances are so do Tucker Carlson and the Reverend Al Sharpton who are hosting CNN's "CROSSFIRE" today.

All right. Gentlemen, are you there? Have you taken your places? Tucker?

TUCKER CARLSON, CO-HOST, "CROSSFIRE": Hi, Judy. I'm sorry we can't hear you, but as you can tell, neither James Carville nor Paul Begala is in the studio right now. They've disappeared. A beam of light came down. They were just -- they were gone.

And in their place the Reverend Al Sharpton...

WOODRUFF: Let me turn first to Reverend Sharpton. Who is right about the economy? President Bush says things are looking up, more people are being hired, the economy's growing. On the other hand, John Kerry says the middle class is getting squeezed.

CARLSON: (AUDIO GAP) it is appealing, which is unappealing. And our feeling is it takes a presidential candidate to know one and we have a former one sitting right here.

It's going to be probably be the greatest "CROSSFIRE" this week, if not year.

REV. AL SHARPTON, GUEST CO-HOST, "CROSSFIRE": Even though Tucker's here, it will be a good show.

CARLSON: Yes it will. And we'll see you in a minute.

WOODRUFF: All right. My apologies. It sounds like they're not able to hear me, but we will certainly be hearing them by 4:30 Eastern when "CROSSFIRE" gets under way. The Reverend Al Sharpton and our own Tucker Carlson. They'll be along in about 15 minutes.

WOODRUFF: We're going to try again with our "CROSSFIRE" duo Tucker Carlson and guest host sitting in, Reverend Al Sharpton. I'm going to give you another chance, Reverend Sharpton, on the economy. Who's right? George W. Bush, he says it's growing or John Kerry who says the middle class is hurting.

SHARPTON: Obviously, Kerry is right. If you look at the data, I mean, look at the jobs that have been lost and if you look at the fact that the jobs that President Bush is bragging about, if you compare salaries, we see a 30 percent decrease in the jobs that has been accumulated by the Bush administration. So Bush may be doing better, but the average American is not doing better. If you're trying to build for your family you're in serious trouble under Bush. If you just want to buy a new car, a temporary bump, you got it under Bush but it's a temporary bump going nowhere.

WOODRUFF: Tucker?

CARLSON: I mean, there's no question that we're in the process of watching the heavy manufacturing industry in this country die and it's a lot harder to make a good living if you're a blue collar, high school-educated worker than it was 40 years ago. These are long-term trends. There's no arguing them. However, it's also, inarguable, I think that the economy is rebounding. 1.4 million jobs created in the last nine months, it's not bad. There's a boom going of a sort and it's pretty hard to argue that we're in the middle of a (UNINTELLIGIBLE) or approaching another Great Depression. It's just not plausible, I don't think.

SHARPTON: It's 1.4 million jobs, Judy, that is not paying what they used to pay and it's after a loss of 3 million jobs. So I guess if you want the Republican analysis, if President Bush stabbed the American public in the back six inches and we got it out two inches, Tucker calls that progress. I say we still got knifed in the back.

CARLSON: I would say this is what you get when you get globalization. Again, you don't manufacturer as many heavy things as you used to. We're transitioning more to a service economy. That may be good, it may be bad, but again, it's part of a very long-term trend that the current president, I don't think, had a whole lot to do with.

SHARPTON: In that trend, this current president gave us tax cuts, he gave us a war that was not necessary that we spent hundreds of billions of dollars. It's not like all he did, Tucker, was sit around trying to salvage the money. This guy was very, very, very extravagant during these times. And I think if you took away his tax cut, took away his war he could have probably handled the trends a lot better.

CARLSON: Yes, I mean, if you don't know -- wars are super expensive. This president is a big spender. There's no question about it. On the other hand we were in a recession not that long ago and now we're not and I think you have to give Bush credit for that.

SHARPTON: We went to war over weapons that weren't there. I mean, it's one thing to be a big spender, it's another thing when you come home with no shopping bags.

CARLSON: I can't extend the metaphor further. You've taken me to the limit.

SHARPTON: Just wait until we get on "CROSSFIRE."

CARLSON: We're going to get so deep into this, Judy, you're going to be transfixed. No time even to get up and get a soda. It's going to be an excellent show.

We're checking the headlines and the dollar signs in today's edition of the "Campaign News Daily." We start with the Bush campaign which as of the end of May had raised its record-setting take to $215 million. Bush-Cheney '04 has been raising money since May of 2003. Last month the president's reelection campaign took in another $13.2 million from about 223,000 contributors.

The Kerry campaign is way behind but the senator raised a million dollars just last night. Today he added another half a million dollars to his total during a fundraiser in Cincinnati. Last night's private event was at the New Jersey mansion of rock star Jon Bon Jovi. Among the attendees, actress Meg Ryan and actor James Gandolfini, the star of HBO's hit show, "The Sopranos." And finally, the souvenirs from next month's Democratic Convention apparently will not include autographed copies of Bill or Hillary Clinton's books. The "Boston Globe" reports that the senator and former president have canceled plans for a book signing party during the convention. Apparently they were concerned that it would take too much media attention away from nominee John Kerry.

It is a match-up fit for the Golden State. When we come back, James Bond takes on the Terminator. We'll find out about a bill that actor Pierce Brosnan is pressing Governor Schwarzenegger to support.

(COMMERCIAL BREAK)

WOODRUFF: In the unpredictable world of California politics, how about this for a matchup. James Bond versus the Terminator. Actor Pierce Brosnan is challenging Governor Arnold Schwarzenegger to support a bill that allows only emergency logging in the state's ancient forests. Brosnan lobbied for passage of the bill that is expected to clear at the legislature and then head to Schwarzenegger. The governor's aides say that he has not yet taken a position on it.

I want to see the two of them face off. That's it for INSIDE POLITICS. I'm Judy Woodruff. Thank you for joining us. "CROSSFIRE" starts right now.

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